Center for American Progress Action

RELEASE: Donald Trump Benefits From Multibillion-Dollar Tax Loophole He Wants To Expand, CAP Action Fund Report Finds
Press Release

Washington, D.C. — Donald Trump has profited from at least 68 business entities that benefit from a tax loophole that cost the U.S. Treasury $790 billion between 2003 and 2012, according to a new report released today by the Center for American Progress Action Fund. Trump has taken advantage of the so-called pass-through loophole by structuring many of his businesses as limited liability companies, or LLCs, and limited partnerships, or LPs—business forms that were originally designed for smaller, simpler businesses. Unlike C corporations, which pay the corporate income tax, the income of pass-through companies is passed through to their individual owners, who pay only the individual income tax on their proportionate share of the pass-through business’ taxable income. A Center for American Progress report has highlighted the way the pass-through loophole benefits big businesses, particularly in the real estate and financial industries. The report notes that some 70 percent of the income from pass-through-eligible businesses goes to the top 1 percent of U.S. households by income, which includes Trump’s.

Trump’s tax plan would lower the top tax rate on pass-through entities—such as the Trump Organization, LLC—to just 15 percent. Trump has argued for a tax cut on pass-throughs because of the need to help small business, but Trump—who repeatedly brags about the size and value of his companies—is himself a prime example of how big businesses use passthroughs to lower their owners’ tax bills. Trump’s 2015 financial disclosure form listed income from 68 LLCs—a leading type of passthrough—and his lawyers noted that Trump is the owner of 500 separate entities that he almost exclusively operates as pass-throughs. Trump has already proudly boasted that he “uses everything in the book to avoid taxes,” and a Trump University textbook instructs students on how to emulate him. The textbook—titled Asset Protection 101—explicitly cites the tax benefits of pass-throughs on page 176, such as LLCs and LPs, for wealthy real estate investors.

“Trump’s use of pass-through companies is just another example of how his businesses have profited at the expense of everyday Americans,” said Ryan Erickson, Associate Director of Economic Campaigns at CAP Action and co-author of the report. “Just as he did in his now-bankrupt casinos, Trump is manipulating business structures for his own benefit—and to the harm of everyone else. His plans to expand the loophole reveals his commitment to helping people like himself, while depriving the government of badly needed revenue for critical investments, such as infrastructure, education, and health care.”

Trump’s expansion of the pass-through loophole would further exacerbate rising income inequality. The CAP Action report notes that about 40 percent of the increase in the share of market income going to the top 1 percent is explained by pass-through income between 1979 and 2011—twice as much as other forms of capital, including corporate stocks and bonds. While almost 70 percent of pass-through income goes to the top 1 percent of households, only 13 percent goes to the bottom 90 percent of households.

Click here to read “The Art of the Passthrough” by Ryan Erickson and Brendan V. Duke.

For more information or to speak with an expert, contact Chelsea Kiene at [email protected] or 202.478.5328.